Mixed first take, with positives including continued good average core loan growth, average deposits up 10% y/y in CCB, rising credit card sales volume, uptick in card rev. rate to 10.5% from 10.2% q/q, momentum in commercial banking

Read-Across: CIB results reflected strength in M&A, a plus for GS, MS; and DCM is a plus for BAC; trading strength in PB/Derivatives is positive for GS, MS; weakness in commodities negative for GS and rates/credit negative for C, BAC

NIM trailed KBW est., falling q/q, despite deposit beta that was in line with KBW est.

Loan growth, credit outlook beat

Market perform, PT $94

CITIGROUP

Nomura Instinet (Steven Chubak)

Results “stack up a bit better” than JPM’s, with more resilient NII, stronger FICC and I-banking fees, lower provision; while expenses were slightly above consensus, efficiency ratio was in line with C’s 59% guidance

Sees “further runway” for stock and consensus to move higher

Rates C buy, PT $74

Evercore ISI (Glenn Schorr)

Results were “decent,” as modest beat was driven by OK revenue, loan and deposit growth, strong card, investment banking and private bank results, good efficiency and further capital return

C should be able to increase return on/return of capital over time, as it’s clear Cards/Mexico investments are producing, and there’s larger capital return approval; that said, 6.8% ROE and 9.2% ROTCE are “a ways away from the company’s goals and what’s required to drive a premium valuation”

With large capital and SLR ratios, and shares now a “drop above tangible,” capital return will “obviously continue to be a big part of the Citi story” given importance of closing return/valuation gap vs peers

EPS beat driven by tax benefit related to the sale of insurance services business and a lower-than-est. credit provision; fee rev. softer than expected (largely driven by drop in mortgage rev.), partially offset by lower-than-est. expenses

Still facing revenue headwinds as average loans declined 0.7% q/q, driven by 4% drop in auto loans, further Heloc run-off; notes auto loans expected to decline further over rest of the year

Notes efficiency ratio of 61.1% is still at top end of the full year target range of 60%-61%; hard to see dramatic improvement in efficiency if topline environment remains difficult

Neutral, PT $59

************

The thing you have to keep in mind about all of this is that it comes at a time when things should have been looking up for the financials.

Indeed, this was supposed to be a space that was something of a “sure bet” after Trump got elected. Looser regulations, growth-friendly policies, an inner circle full of bankers, etc. etc. What was there not to like?

“After Election Day, the bull case on U.S. bank stocks was simple – Donald Trump was taking office, and he’d usher in tax cuts and government spending that would spur a reflationary surge to the benefit of lenders,” Bloomberg wrote this morning, before noting that “eight months later, very little of that has happened.”

But this morning’s post-earnings slide notwithstanding, that hasn’t generally stopped investors from sticking around and hoping for the best. Of course if you look at the curve, it’s pretty clear that at this point, “hope” is all there is left (a recent – and likely fleeting – bout of steepening notwithstanding):

Simply put: in the absence of something concrete on policy, this is a fool’s errand at this juncture.

“Something tangible better happen soon or those bulls will start turning to bears,” Compass Point’s Charles Peabody, told Bloomberg. “Right now you’re making money purely on multiple expansion related to policy and I suspect it may be a bridge too far,” he went on to warn.

Yes, “a bridge too far.”

And I don’t know about you, but from where I’m sitting, the incoming econ data doesn’t seem to be screaming “reflation imminent“.

Writing about a subject is the best
way to educate yourself about it, and when I flick through past work I remember how much
they taught me, if no one else. Mainly they taught me that I didn’t know very much. But they
also taught me that most other people didn’t know much either. Thus, some key themes
which stand out include the illusory control of policy makers, the presumed knowledge of
those looking to them to actively do good, the ease with which we fool ourselves, and how
best to protect capital in the face of such unavoidable uncertainty. -- Dylan Grice